It’s another typical early morning. With a busy day ahead, I’m getting a bit of writing done before the kids drag themselves out of bed and downstairs for breakfast. I’m clicking around the Internet and wiping the sleep from my eyes when I’m greeted with this headline from Yahoo Finance:
“Global Shares Plunge as U.S. Slowdown Adds to Emerging Markets Woes”
I quickly pulled up a stock chart and noticed the financial markets have been in a free fall since the start of January. As of this writing (the morning of 2/4/14), the Dow Jones Industrial Average has fallen over 1,200 points (about 7%) since Jan. 1st. Many are calling for another 3-5% drop from here. Yikes!
Well, faced with that news what could I do? I grabbed my shotgun, some bottled water and my case of Ritz Crackers ‘n Cheese and headed for the bunker I’ve built in the basement. It’s fully stocked for Armageddon. The wife and kids will have to fend for themselves.
Clearly the world is coming to an end.
Isn’t that your first gut reaction when those sensationalistic headlines hit the newswires? Doesn’t our mind subconsciously leap to thinking “My life is slop” when we hear the headline “The markets down big today?” Why is it we get so worked up about the everyday minutia of stock market trends and economic reports?
I mean some are literally basing the entire outcome of their day on how many durable goods were sold last month. Give me a break.
I’ve worked really hard to control my emotions when it comes to money. Even now though, my spirit wants to trend towards panic at the first sign of market commotion. I really have to consciously fight it. Fortunately over the years, I’ve developed some defense mechanisms that have helped me resist going crazy over these short-term fluctuations in the market.
Before I describe what those are, I’d like to say a word (have a polite rant) to the major financial news media outlets:
Stop it! Please.
Quit creating unnecessary drama when reporting the financial news. Stop raising your voice like there’s an asteroid headed for my backyard. Stop showing brokers sweating it out, screaming at one another on the stock market floor.
Those of us who truly get personal finance aren’t interested in this frenzy or the short-term trends anyway.
And the people that don’t yet get personal finance – the ones we are trying to help have long-term success – are getting scared. They are making unwise decisions based on the sensationalizing of the day’s financial events.
We get that you want ratings for the parent network or website but you are making our job as personal finance bloggers even more difficult. (Rant over. That was a polite rant, right? I said “Please.”)
So how do I avoid getting swept up in these headlines? For me, it really boils down to three things.
Develop a Long-Range Plan
Put some plans together and develop a clear map for your financial life. Have a plan for your investing. Have one for budgeting. Have a plan for savings and spending money. Putting these in place will give us peace of mind and keep us from overreacting. When the “scary” news comes we can simply say, “Nope, not going to listen. I have my plan.”
Only adjust those plans if something changes in your world, not based on something that happens on one day in the market.
Been There…Done That
Frightened because the market is down 7% since 2014 began? I’m not because it’s happened dozens of times in my adult life. Each time it happens I just remember that I’ve seen it before.
Look at this 2-yr. chart of the Dow Jones Industrial Average:
As you can see, six times in the last two years alone the Dow has suffered a 5% correction or more. Let me say that again… six times in the last two years. It shouldn’t come as a surprise to anyone these pullbacks happen. We don’t need to fear them. (I’ve provided a detailed breakdown of the six corrections in the Dow over the last two years. Click here for that page.)
Pullbacks occur all the time and are not worth the dramatic attention we give them. One 10% correction is not more important than another. So breathe easy and sleep well.
Turn Off the Music
Finally, I’ve simply shut down the programming. I choose not to listen or watch the financial news outlets. Instead I read. I’ve found that helps reduce my emotion over what’s happening.
I’m not going to denigrate all the network programming. There are some quality people conducting the occasional worthwhile interview. However, most of the content doesn’t strike a chord with me nor does it help me advance my long-range planning.
My Life Is Emotional Enough Without the Drama
I’m a long-term, buy and hold investor. Mutual funds, retirement accounts and rental real estate are my bread and butter. I own only one single stock. So the short-term trends of the market simply don’t interest me like they might an institutional investor or a day-trader.
Ignore these sensational headlines and the news anchors squawking at the top of their lungs. Realize the world’s not coming to an end based on one day, one month or one year’s worth of market action. It’s all happened before and will definitely happen again. And understand that simply because the markets correct, sometimes significantly, doesn’t mean your plan is faulty.
One day the world will end. But it won’t be because of a one-day 300-point drop in the Dow. Chill out!
Do you get worked up about these headlines? How do you stay grounded and not make a silly financial decision? Are you fearful of investing when the market is in a downward trend?
Next Post: The “If Only” Game Creates Liars of Us All
Prior Post: The South Ain’t Gettin’ Personal Finance